Replacement cost ensures that if you suffer a loss, your insurer will replace the stolen or damaged item with a new one of like kind and quality rather than calculating the depreciated value of the object in question. Simply stated – you receive new for old.

Guaranteed replacement cost refers to the building. It comes into play only if you suffer a major loss – typically, if you have a major fire loss. Insurance policies cover your house and personal belongings, not the land on which it sits. If the appraiser's estimate of the building cost is too low, it may cost more to rebuild your house than the total amount of your policy. "Guaranteed replacement cost," means the policy limit will be exceeded if necessary. Most people know the market value of their home, but they don't know what it would cost to rebuild, which could be higher or lower than the insured building value.